POM - J. Galván 1 PRODUCTION AND OPERATIONS MANAGEMENT Ch. 15: Material Requirements Planning (MRP)

POM - J. Galván 2 Distinguish dependent from independent demand inventory Distinguish dependent from independent demand inventory Define material requirements planning Define material requirements planning Explain the benefits of MRP Explain the benefits of MRP Identify the requirements of MRP, DRP, and ERP Identify the requirements of MRP, DRP, and ERP Explain the inputs & outputs of MRP Explain the inputs & outputs of MRP Compute order releases Compute order releases Learning Objectives

POM - J. Galván 3 Item Materials With Independent Demand Materials With Dependent Demand Demand Source Company Customers Parent Items Material Type Finished GoodsWIP & Raw Materials Method of Estimating Demand Forecast & Booked Customer Orders Calculated Planning Method EOQ & ROPMRP Dependent versus Independent Demand

POM - J. Galván 4 Inputs to the Production Plan Production Plan Marketing Customer Demand Engineering Design Completion Management Return on Investment Capital Human Resources Manpower Planning Procurement Supplier Performance Finance Cash Flow Production Capacity Inventory

POM - J. Galván 5 Requirements for Effective Use of Dependent Demand Inventory Models  Effective use of dependent demand inventory models requires that the operations manager know the: master production schedule master production schedule specifications or bills-of-material specifications or bills-of-material inventory availability inventory availability purchase orders outstanding purchase orders outstanding lead times lead times

POM - J. Galván 6 The Planning Process Production Plan Execute Material Plans Master Production Schedule Material Requirements Plan Capacity Requirements Plan Execute Capacity Plans Realistic?? No Yes

POM - J. Galván 7 Typical Level for the Master Schedule A customer order in a job shop (process focused/make to order) company A customer order in a job shop (process focused/make to order) company Modules in a repetitive (assemble-to- stock) company Modules in a repetitive (assemble-to- stock) company An end item in a continuous (product focused/make to stock) company An end item in a continuous (product focused/make to stock) company

POM - J. Galván 8 List of components & quantities needed to make product List of components & quantities needed to make product Provides product structure (tree) Provides product structure (tree) Parents: Items above given level Parents: Items above given level Children: Items below given level Children: Items below given level Shows low-level coding Shows low-level coding Lowest level in structure item occurs Lowest level in structure item occurs Top level is 0; next level is 1 etc. Top level is 0; next level is 1 etc. Bill-of-Material

POM - J. Galván 9 Bicycle(1) P/N 1000 Handle Bars (1) P/N 1001 Frame Assy (1) P/N 1002 Wheels (2) P/N 1003 Frame (1) P/N 1004 Bill-of-Material Product Structure Tree

POM - J. Galván 10 Time-Phased Product Structure D G F E C E D B A 2 weeks 1 week 3 weeks 2 weeks 1 week 2 weeks 1 week 2 weeks to produce Start production of D Must have D and E completed here so production can begin on B

POM - J. Galván 11 Manufacturing computer information system Manufacturing computer information system Determines quantity & timing of dependent demand items Determines quantity & timing of dependent demand items Material Requirements Planning (MRP)

POM - J. Galván 12 Computer system Computer system Mainly discrete products Mainly discrete products Accurate bill-of-material Accurate bill-of-material Accurate inventory status Accurate inventory status 99% inventory accuracy 99% inventory accuracy Stable lead times Stable lead times MRP Requirements

MRP PURPOSE Coordination of Production and Inventory in large, multi-stage production systemsCoordination of Production and Inventory in large, multi-stage production systems Capacity planning, scheduling, supplier coordinationCapacity planning, scheduling, supplier coordination Timely dissemination of informationTimely dissemination of information Synchronized production and procurementSynchronized production and procurement Central engineering and logistic database (Central element of the ERP system)Central engineering and logistic database (Central element of the ERP system)

MRP PROBLEMS Deterministic model Large data requirements and GIGO (Garbage in garbage out) Self-fulfilling lead-times, so then what happens if fulfilment is not accomplished? Difficulty and cost of installation and maintenance Centralized command and control mindset

POM - J. Galván 15 Increased customer satisfaction due to meeting delivery schedules Increased customer satisfaction due to meeting delivery schedules Faster response to market changes Faster response to market changes Improved labor & equipment utilization Improved labor & equipment utilization Better inventory planning & scheduling Better inventory planning & scheduling Reduced inventory levels without reduced customer service Reduced inventory levels without reduced customer service MRP Benefits

Variables in MRP o Master Schedule -WHEN o Bills of Material -WHAT o Stocks & Work in Progress (WIP) – HOW MUCH o Lead-times – WHEN TO HAVE AVAILABLE o Work orders / schedules – WHAT TO DO o Purchase orders / schedules –WHEN TO ORDER o Yields – WHAT IS LOST o Working days / times - CALENDAR

POM - J. Galván 17 Structure of the MRP System MRP by period report MRP by date report Planned orders report Purchase requirements Exception reports MRP Programs Master Production Schedule BOM Lead Times (Item Master File) (Bill-of-Material) Inventory Data Purchasing data

POM - J. Galván 18 Forecast & Firm Orders Material Requirements Planning Aggregate Production Planning Resource Availability Master Production Scheduling Shop Floor Schedules Capacity Requirements Planning Realistic? modify CRP, MRP, or MPS Yes MRP and The Production Planning Process No

POM - J. Galván 19 MRP Systems - Input and Output Master Production Schedule Bill of Materials Material Requirements Planning System Inventory Status Planned Order & Other Reports Item Master Purchasing Data

POM - J. Galván 20 Shows items to be produced Shows items to be produced End item, customer order, module End item, customer order, module Derived from aggregate plan Derived from aggregate plan Master Production Schedule

POM - J. Galván 21 Item/WeekOct 3Oct 10Oct 17Oct 24 Drills Saws Shows items to be produced Shows items to be produced End item, customer order, module End item, customer order, module Derived from aggregate plan Derived from aggregate plan Example Example Master Production Schedule

POM - J. Galván 22 MRP Dynamics Supports “replanning” Supports “replanning” Problem with system “nervousness” Problem with system “nervousness” “Time fence” - allows a segment of the master schedule to be designated as “not to be rescheduled” “Time fence” - allows a segment of the master schedule to be designated as “not to be rescheduled” “Pegging” - tracing upward in the bill-of- materials from the component to the parent item “Pegging” - tracing upward in the bill-of- materials from the component to the parent item Manager can react to changes, doesn’t mean he/she should Manager can react to changes, doesn’t mean he/she should

POM - J. Galván 23 MRP and JIT MRP - a planning and scheduling technique with fixed lead times MRP - a planning and scheduling technique with fixed lead times JIT - a way to move material expeditiously JIT - a way to move material expeditiously Integrating the two: Integrating the two: Small bucket approach and back flushing Small bucket approach and back flushing balanced flow approach balanced flow approach

POM - J. Galván 24 Extensions of MRP Closed loop MRP Closed loop MRP Capacity planning - load reports Capacity planning - load reports MRP II - Material Resource Planning MRP II - Material Resource Planning Enterprise Resource Planning Enterprise Resource Planning

POM - J. Galván 25 Extensions of MRP Closed Loop MRP Dispatch List Is specific capacity adequate? Is average capacity adequate? Material Requirements (detailed) Capacity Requirements (detailed) Input/Output Desired Master Production Schedule Realistic? Priority Control Capacity PlanningPriority Planning Capacity Control Resource Planning First Cut Capacity Production Plan No Yes

POM - J. Galván 26 Extensions of MRP Capacity Planning Tactics for smoothing the load and minimizing the impact of changed lead time include: Tactics for smoothing the load and minimizing the impact of changed lead time include: Overlapping - reduces the lead time, entails sending pieces to the second operation before the entire lot has completed the first operation Overlapping - reduces the lead time, entails sending pieces to the second operation before the entire lot has completed the first operation Operations splitting - sends the lot to two different machines for the same operation Operations splitting - sends the lot to two different machines for the same operation Lot splitting - breaking up the order and running part of it ahead of the schedule Lot splitting - breaking up the order and running part of it ahead of the schedule

POM - J. Galván 27 Extensions to MRP Enterprise Resource Planning MRP II with ties to customers and suppliers

POM - J. Galván 28 MRP in Services Can be used when demand for service or service items is directly related to or derived from demand for other services Can be used when demand for service or service items is directly related to or derived from demand for other services restaurant - rolls required for each meal restaurant - rolls required for each meal hospitals - implements for surgery hospitals - implements for surgery etc. etc.

POM - J. Galván 29 Distribution Resource Planning DRP requires: DRP requires: Gross requirements, which are the same as expected demand or sales forecasts Gross requirements, which are the same as expected demand or sales forecasts Minimum levels of inventory to meet customer service levels Minimum levels of inventory to meet customer service levels Accurate lead times Accurate lead times Definition of the distribution structure Definition of the distribution structure